Fixed Term Employment Under the Labour Codes

Fixed term employment was formally introduced in March 2018 by amending the Central Rules under the Industrial Employment (Standing Orders) Act, 1946. This allowed all types of industries to engage fixed term workmen. Our earlier blog has studied the introduction of the amendment to the Central Rules under the introduced fixed term employment.

The new labour codes have extended this to all types of establishments. Generally speaking, fixed term employment is a mode of work wherein an establishment hires an employee for a specific period of time. This period is stipulated in the contract of employment and may be renewed after expiry depending on the requirements of a particular role.

The utility of such a work arrangement stems from its flexibility if viewed from an employer perspective. It also benefits industries that are engaged in short-term projects that require skilled workmen. This is especially seen in industries that experience seasonal variations in demand of a particular good or service. If seen from an employee’s perspective, it is an option for individuals seeking work experience along with short-term earning ability. This helps workers seeking requisite experience for permanent jobs as well.

A major concern amongst fixed term employees, however, was the fact that they often received the short end of the stick when it came to conditions of work, statutory benefits and termination of employment. They were not entitled to the same benefits and protections that permanent employees received.

The labour codes have taken big steps to correct the above and ensure fixed term employees receive adequate protection. The subsequent section shall examine the substantive provisions under the Codes relating to fixed term employment to provide readers with an overview of the legal framework pertaining to the same.

Definition of Fixed Term Employment

The term fixed term employment is defined only under the Code on Social Security and Industrial Relations Code. There are two nuances that distinguish these definitions from one another. Under the Code on Social Security, the definition uses the term employee and does not contain clause-(c) found in the Industrial Relations Code. The IR Code on the other hand uses the term worker and contains the aforementioned clause which provides that a fixed term worker shall be eligible for gratuity if he renders service under the contract for a period of one year.

However, both the definitions make it clear that a fixed term employee’s working hours, wages, allowances and other benefits shall not be less than that of a permanent employee doing the same work or work of a similar nature. They also clearly stipulate that fixed term employees shall be eligible for all benefits available to a permanent employee under any law for the time being in force. This is subject to the caveat that the benefits shall be paid in proportion to the period of service rendered. It is not necessary for the period of service to extend to the required qualifying period of employment.

The implications of the above-mentioned definitional nuances will become clear in the subsequent section that examines the substantive provisions relating to fixed term employment.

Provisions Relating to Fixed Term Employment

The biggest change brought in may be found under Section-53(1)(d) of the Code on Social Security. It provides that gratuity shall be payable on termination of contract period under fixed term employment. The second proviso under the above states that the five years continuous service requirement shall not be necessary in cases of expiration of fixed term employment. The third proviso to Section-53(2) stipulates that in the case of fixed term employee’s gratuity shall be paid on a pro rata basis.

It is here the definitional nuance discussed above becomes relevant. Fixed term employment defined under Section-2(o) of the IR Code contains a clause stating that fixed term workers become eligible for gratuity if they render service under their contract for a period of one year.

This might prompt one to conclude that the one-year requirement is applicable only to workers and not to employees. However, the proviso to Rule-35(a) of the draft Code on Social Security (Central) Rules, 2020 provides us with clarity on the same. It clearly states that an employee on fixed term employment shall be eligible for gratuity if he renders service under the contract for a period of one year. Therefore, the difference in definition does not create any distinction between workers and employees. Both, the Code on Social Security and the Industrial Relations Code provide for similar legal regulations.

There is, however, ambiguity surrounding the period of service a fixed term employee would have to complete to become eligible. The provisos under the Code on Social Security and its rules do away with the five-year requirement and impose a one-year contract of service requirement, respectively. Confusion arises due to the pro rata basis proviso under Section-53(2) which indicates the possibility for a shorter period to be eligible for gratuity as a fixed term employee.

There also questions surrounding gratuity payments in cases where contracts are renewed. These can have differing consequences based on the operation of renewal clauses, extension clauses and clauses that create a new contract de novo. Depending on the operation of the clauses the eligibility and quantum of gratuity payable may differ.

Which interpretation of the provisos do you think is correct?

Should fixed term employees be entitled to gratuity after completion of one year?

Do the provisions provide for payment of gratuity for shorter periods of service?

Drop your thoughts in the comments below.

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